On January 11, 2013, Penson Worldwide (“Penson”), a clearing and settlement provider for the investment trading industry, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  In papers filed with the Bankruptcy Court, Penson describes itself as a company that provides “execution, clearing, custody, settlement, and technology products and services to financial firms.”  See Declaration of Bryce Engel in Support of Chapter 11 Petitions (hereinafter, the “Decl.” ), at *3.  After its start in 1995, Penson grew to become one of the largest independent securities clearing brokers in the United States.  Through its subsidiaries, Penson also became one of the largest independent clearing brokers in Canada, Australia and the United Kingdom.  Id.

Reasons for Bankruptcy

Penson attributes its need for bankruptcy protection to lower investor volume in the public markets, which in turn led to less commission fees and increased regulatory capital requirements.  Decl. at *17.  Penson’s earnings and profitability are highly correlated to the strength and performance of global investment markets.  The last couple of years have created “substantial economic uncertainty and prolonged volatility in the world’s financial markets.”  Decl. at *16.  In 2010, average daily trading volume in the stocks dropped by 5% and again fell by 8% in 2011.  Decl. at *17.  Less market participation means less revenue for Penson.  The company’s problems were compounded by increased competition and the loss of one of the company’s largest institutional customers.  Id.

Penson’s Financials

Penson’s revenues for 2011 totaled $217.3 million. Decl. at *3.  A little under half of the company’s revenues for 2011 came from clearing and commission fees, a quarter from interest income, 10% from technology products and 14% from other sources.  Id.  Penson’s debt obligations include a $50 million revolving credit agreement, secured notes maturing in 2017 with a face value of $200 million and convertible notes maturing in 2014 with a face value of $60 million.  The company is also party to various inter company notes.  Decl. at *8-9.

Objectives in Bankruptcy

Prior to filing bankruptcy, Penson began negotiations with its note holders.  Those negotiations resulted in a consensual agreement for the liquidation of Penson’s business.  Penson filed for bankruptcy with the intentions of implementing the previously agreed to “Joint Plan of Liquidation of Penson Worldwide, Inc., and Its Affiliated Debtors.”  Decl. at *23.  The Penson bankruptcy proceeding is before Judge Peter J. Walsh.  Penson is represented by the Delaware law firm Young Conaway Stargatt & Taylor.